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TMI Blog2011 (12) TMI 578X X X X Extracts X X X X X X X X Extracts X X X X ..... n stock was shown at ₹ 12,37,54,906/- and the excise duty leviable on it at ₹ 1,88,50,685/-. The assessee valued the finished goods and waste were at cost or net realizable value and the liability for excise duty in respectof finished goods lying in factory premises was accounted for as and when the goods were sold/cleared. In view of the Hon'ble Supreme Court judgment in the case of CITs British Paint India Ltd 188 ITR44 (1990), the assessee should have increased the value of closing stock by the excise duty leviable. But the assessee failed to do so the AO asked the assessee to explain why the value or closing stock should not be increased by the excise duty element. In response the assessee submitted that details of excise duty on closing stock, details of stock clearance, details of payment of excise duty on closing stock, amounts paid, period of payment, details of duty removals as per RT12 were filed. As per section 43B such excise duty paid before due date of filing return was allowable. Hence in case duty in respect of closing stock was increased then corresponding deduction towards payment of excise duty liability be allowed. The assessee further stated that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods stock, quantity, total finished goods of 3701582 kgs were cleared on 30.06.2002 covering the closing stock also. Hence it is clear that both quantity and amount of excise duty on closing stock stands cleared upto 30.06.2002 which is much before the due date u/s 43B. Therefore, the disallowance of ₹ 1,88,50,685/- deserves to be deleted. He further stated that the stand of the AO that liability for excise duty was not created in the books of account calls for no addition because the appellant company has not claimed the same in the return. The Ld. AR further contended that once such sum is added to the income by the AO, then while granting deducting u/s 43B, the AO can not say that on liability is created in the books. In support of this contention, the Ld. A/R placed reliance in the case of CIT Vs. Hirabie Mittal & Sons 86 ITR 463. It has also been stated that the Supreme Court in the case of Calcutta Company Ltd vs CIT 37 ITR1 has held that the liability is to be allowed as deduction though the assessee has not passed entries in the books of acocunt. In view of the above, the Ld. A/R contended that the AO was not justified in not allowing deduction u/s 43B of the Act. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant has paid the excise duty of more than ₹ 1,88,50,685/- before the due date of filing of the return, therefore, the amount of ₹ 12,77,003/- is allowable as a deduction u/s 43B of the I.T. Act, 1961. Therefore, A.O was not justified in making the addition of ₹ 1,88,50,685/- on account of inclusion of excise duty in the value of closing stock. Accoridngly the addition made of ₹ 1,88,50,685/- is deleted.'' 2.3 During the course of proceedings before us, the ld. AR submitted that Excise Duty stands debited in the profit and loss account and therefore, the same should have bee include in the valuation of closing stock. The deduction u/s 43B is also not allowable because the deduction stands already claimed in the profit and loss account. This factual aspect was controverted by the ld. LD. AR. 2.4 The above referred issue has been considered in detail by Hon'ble Gujarat High Court in the case of ACIT vs Narmada Chematur Petrochemicals Ltd. 327 ITR 369. The Hon'ble Gujarat High Court has observed that assessee under the Excise Duty Act is not required to discharge the liability to pay duty levied upon the manufacture of excisable goods till su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue filed an appeal before the Tribunal and the Tribunal vide its order dated 13-07-2006 confirmed the findings of the ld.CIT(A). While confirming such findings, the Tribunal has referred that this issue has been decided in favour of the assessee by the Tribunal in earlier years. Following the order of the Tribunal in the case of the assessee for the assessment year 1998-99 and 2000-01, we hold that the ld.CIT(A) was justified in deleting the disallowance of depreciation on lease assets. 3.1 The third ground of Revenue is that the ld. CIT(A) has erred in restricting the disallowance out of interest payment to ₹ 2,80,410/- as against that of ₹ 13,85,024/- made by the AO on account of lower interest bearing advances given by the assessee. 3.2 The assessee vide ground of appeal no. 3 is aggrieved against confirmation of addition towards interest to the extent of ₹ 2,80,490/-. 3.3 The ld.CIT(A) has mentioned the facts on which AO has made addition, case of the assessee before him and thereafter he has given his decision. It will be useful to reproduce the following para from the order of the ld.CIT(A). ''1 AO's cases. In the assessment order the AO has o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced interest rate was not for any business expediency. Accordingly, the AO disallowed the interest payment to the extent relatable to the loan to SRSL Trust @ 7% (13%-6%) i.e. ₹ 9,78,268/-was disallowed and added to the total income. In the case of Shree Rajasthan Texchem Ltd, Mumbai the interest was charged @10% for the period 1.04.2001 to16.10.2001 and for the balance period @ 13%. The AO further stated that here also it cannot be said that the loan to this Company at concessional rate of interest was provided on account of any business expediency. Accordingly, the AO disallowed the claim relatable to the under charge of interest on loan to SRTL amounting to ₹ 4,06,756/- and added to the total income. 4.2 Appellant's case: During the course of appellate proceedings the Ld. A/R contended that the appellant Company had already charged interest @ 10% p.a. upto1.10.2001 and @ 13%p.a. from SRTL but the AO has wrongly assumed further interest @ 17% and computed the difference at ₹ 4,06,756/-. Similarly the appellant Company had already charged interest from SRSL Welfare Trust @ 6% p.a but the AO has wrongly assumed interest@ 13% adding 7% interest amounting to S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss benefits. It was long back in1995 that SRSL while promoting the company SRTL agreed to grant unsecured loan of ₹ 314 lacs @ 10% p.a. upto the year 2002. The Company SRSL was bound by its commitment of charging interest on loan @ 10% p.a. Accordingly the Company has abided by the business commitments, which is evident from the terms after Oct. 2002 that interest rate has been raised to 13%. In view of the above the Ld. A/R stated that the AO was wrong in disallowing interest that too assuming a higher rate of 17% p.a. as per the following - A. Interest& financial expenses 50058285 B. Loan secured & unsecured 581664212 C. Average interest rate (cost) (percentage) A/B x 100 8.60 % Thus the opening interest cost in 2001-2002 based on preceding years cost was only 8.60% p.a. whereas the AO has wrongly applied a higher rate of 17% p.a. without any basis. The Ld. A/R further stated that the SRSL Welfare Trust received dividend of ₹ 36,33,425/- from F.Y. 1993- 94 to 2004-05. Further it is not the case of AO that the borrowing transactions were illusory or colourable and that the borrowings by the Appellant Company were not for the purpose of business. It has been accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll statutory regulatory authorities and financial institutions, the appellant Company was bound by its commitments of charging interest on loan @ 10% p.a. Accordingly, the Company had abided by the business commitments. Further it is evident that as per terms after October 2002, interest rate has been raised to 13% p.a. The A/R has further given the working of average rate as under - A. Interest& financial expenses 50058285 B. Loan secured & unsecured 581664212 C. Average interest rate (cost) (percentage) A/B x 100 8.60% Thus the interest cost to the appellant is only 8.60% whereas the AO has wrongly applied higher rate of 17%. Thus it is seen that the appellant company was bound by its terms and conditions as a promoter of SRTL and giving loan at 10% interest rate which was increased to 13% p.a. Thus actually there is a difference of 1.4o% only, which has been excess charted by the appellant and not less charged as mentioned by the AO in the assessment order. Therefore the disallowance is deleted and the appellant gets a relief of ₹ 4,06,756/- on this account. Regarding the interest rate in case of SRSL Employees Welfare Trust @ 6%, the facts are altogether different. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed. 4.1 The fourth ground of Revenue is that the ld. CIT(A) has erred in deleting the addition of ₹ 27,21,000/- made on account of valuation of closing stock. This issue has been discussed by the ld.CIT(A) vide para 7.1 to 7.3 of his order which is reproduced as under:- ''7.1 AO's case In the order it has been stated by the AO that as per schedule 13 - notes on accounts the Auditors had remarked as under:- As regards valuation of inventories, since the company is manufacturing and selling also in retail trade number of quantities and shades which are repeatedly changing as per market requirements, it is not practical to work out cost of each shades and quality with reasonable accuracy. Hence as per past practice, the company is valuing work in progress and finished goods as per method disclosed in note No.1(iii)(c) (d) of accounting policies. Because of this method adopted, profit for the year is lower by ₹ 27.21 lacs (previous year ₹ 29.38 lacs)." The AO asked the assessee to explain in the case. In compliance the assessee has stated that "para-6(a) is self explanatory. It is consistently followed as best possible method. Further, the closing st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect value of stocks in the appellant's circumstances. He further stated that the AO's assumption is accepted then if the addition of ₹ 27.21 lacs is made to inventories then the same is allowable in next year by way of opening stock. He further contended that the AO has worked out the amount of addition in value of inventories without any basis and deserves to be deleted. In support of his contentions the Ld. A/R placed reliance in the case of Chouthmal Gopalchand 6 ITR 733, 743, Ramswaroop Bengalimal Vs CIT 251 ITR 17, Ram Laxman Sugar Mills Vs.CIT 63 ITR 51, Steel Barrel Co. Ltd Vs Osborne 30 TC 73 in which has been held that it is obvious that a closing stock of a year is the opening stock of the next year and the valuation placed by the upon closing stock should be adopted as the valuation of the opening stock of next year. In view of the above, the Ld. A/R contended that the AO was not justified in making the addition and the same deserves to be deleted. 7.3 Decision: I have considered the observations of the AO and the contentions of the appellant and found that the AO has increased the profit by ₹ 21,21,000/- on the ground that the appellant did not exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought forward is not the real one. It may be more or it may be less, but it has no relation to the true profit if the stock is valued on one basis when it goes out without considering the value of the stock when it comes in. When, therefore, there is under valuation at one end, the effect is to cause both a smaller debit in respect of the stock introduced into the next account and a larger sum for profits realised by the sale, change in market values being immediately reflected in the price obtained for the goods that are sold ; in these circumstances to contend that there should be under valuation at one end and not at the other is to raise an argument which their Lordships cannot accept." The opinion of the Privy Council was that whenever there is a change in the valuation at one end (that is on March 31, 1999 as in the present case) then there must necessarily be a corresponding change at the other end (that is on April 1, 1998 as in the present case) otherwise the true profit would not be reflected. 4.4 It is an accepted proposition of law that in case the method of valuation is changed by the assessee then no adjustment is required to be made in respect of opening s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares have been sold at the cost price and loss has been occurred on account of indexing. Therefore, the AO disallowed the claim of loss and not allowed to be carried forwarded. 8.2 Appellant's case: During the course of appellate proceedings, the Ld. A/R contended that the AO has wrongly disallowed the loss on sale of shares on wrong presumption. In the reply dated 25-02-2005 referred and relied by the AO it is clear that all proofs of cost of shares, distinctive Nos. purpose price, share transfer forms etc. were given. He further stated that it is not disputed by the AO that the same were wrong. The facts about cost of shares, share transfer forms are not in dispute. He further stated that the market value could not be given in case of unquoted shares whereas all other details regarding purchases/sale/payments were furnished before the AO. He further stated that complete details have been furnished before the AO, therefore he was not justified in disallowing the claim of the appellant and the claim deserves to be allowed. 8.3 Decision: I have considered the observations of the AO and the contentions of the appellant and found that the AO disallowed the loss on the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Now we take up the appeal of the assessee in ITA No. 159/JU/06. 7.1 The first ground of assessee is that the ld. CIT(A) has erred in disallowing claim towards replacement of plant and machinery to the tune of ₹ 5,98,640/-. 7.2 This issue has been considered by the ld.CIT(A) para 6.1 to 6.3 of his order which is reproduced as under:- 6.1 AO's case. In the order the AO has stated that vide letter dated 2.06.2004 claimed 100% depreciation on plant & machinery replaced during the year. The AO asked the assessee to file evidence and further supporting in respect of this claim. In response to which the assessee filed invoice No.. MD 11100812 dated 31.12.2001isseud by Lakshmi Machine Works Ltd, Coimbatore in respect of draw frame machine. In the order the AO reproduced the relevant portion of under Section 37(1). The AO further stated that the alleged replacements have been effected in TUF the terms of which have not been explaiend. Besides, the meaning of terms 'replacement' as understood by the assessee so as to claim 100% depreciation ahs not been spelt out. He further stated that with the introduction of block system for the purpose of claim of depreciation under the I.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the observations of the AO and the contentions of the Ld. A/R of the appellant and found that the appellant claimed total amount of expenditure of ₹ 6,84,160/- on plant & machinery u/s 37 of the Act. The AO did not accept it and instead of allowed depreciation @ 25%. The AO has submitted in this regard that one draw frame machine for ₹ 6,84,160/- was purchased vide bill dated 31.12.2001 form Lakshmi Machine works for replacement of an old High Speed Draw Frame purchased in 1983. It is further submitted that this machine does not have independent existence or utility unless worked together with the other machines. The A/R has also placed reliance of the decision of the Kerela High Court in the case of S.N. Zubin George Vs CIT (2004) 682 and Madras High Court in the case of CIT vs SAK THAI Textiles Ltd (2001) 250 ITR 449 wherein it has been held that replacement of worn out speed frame did not fall within the capital field but was an expenditure which had to be allowed as revenue. It is clear from the A/R's submission itself that the machinery of 10 years old has been replaced by new one. It means that the machine does have the enduring nature benefit or more over ..... X X X X Extracts X X X X X X X X Extracts X X X X
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